Question

Distinguish between nominal rate of interest and effective rate of interest

Answer 1

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Effective interest rate is the one which caters the compounding periods during a payment plan. The nominal interest rate is the periodic interest rate times the number of periods per year. For example, a nominal annual interest rate of 12% based on monthly compounding means a 1% interest rate per month (compounded).

Answer 2

Answer:

Nominal rate of interest is the periodic interest rate times the number of periods per year